iSpecimen Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2023

There are 7 speakers on the call.

Operator

Good day, everyone, and welcome to I Specimen's Second Quarter 2023 Results Conference Call. At this time, participants are in a listen only mode. A question and answer session will follow management's remarks. This conference call is being recorded. A replay of today's call will be available on the Investor Relations section of iSpecimen's website and will remain posted for the next 30 days.

Operator

I will now hand the call over to Phil Carlson of KCSA for introductions and the reading of the Safe Harbor statement. Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to iSpecimen's Q2 2023 results conference call. With us on today's call is Tracy Curley, Executive Officer and Chief Financial Officer Benjamin Bilak, Chief Information Officer Eric Langlois, Chief Revenue Officer and Evan Cox, VP and Head of Product Management. Before we begin, I would like to remind you that today's call contains certain forward looking statements within the meaning Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended concerning future events. Words such as may, should, projects, expects, intends, plans, believes, anticipates, hopes, Estimates and variations of such words and similar expressions are intended to identify forward looking statements.

Speaker 1

These statements are subject to numerous conditions, many of which are beyond the control of the company, including those set forth in the Risk Factors section of the company's amendment Number 1 to the annual report on Form 10 ks for the year ended December 31, 2022, filed with the SEC on March 30, 2023, and the risk factors set forth in Part 2, Item 1A of our quarterly report on Form 10 Q for the quarterly period ended June 30, 2023 being filed with the SEC shortly after this call. Copies of the company's filings are available on the SEC's website at www.sec.gov. Actual results may differ materially from those expressed or implied by such forward looking statements. The company undertakes no obligation to update these Now it's my pleasure to introduce Traci Kurley, Chief Executive Officer and Chief Financial Officer of Tracy, please go ahead.

Speaker 2

Thank you, Phil. Good morning, everyone, and thank you for joining our call. Today, I will begin with an overview of the Q2, including a brief update on the impact of the current economic environment on our business and the progress of our operational initiatives. I will then turn the call over to Eric Langlose, our Chief Revenue Officer, He will provide additional details on the implementation ramp up of our new revenue enhancing projects and then to Evan Cox, Vice President and Head of Product Management to discuss the technology advancements being made to enrich the overall functionality and efficiency of the iSpecimen marketplace. I will wrap up our call with a discussion of our financial performance for the 3 6 months ended June 30th, 2023 and open the call for questions.

Speaker 2

In the Q2 of this year, we continued to advance several key operational initiatives to unlock our full potential, advancing projects to more effectively connect researchers with suppliers and to integrate new technologies. While we recently have had initial success in expanding our capabilities, streamlining processes To increase supplier utilization and expediting specimen fulfillment, our 2nd quarter results came in below expectations. On our Q1 earnings call, we expressed concern about what we perceived as a general economic uncertainty in our industry and an overall downturn in business. These concerns were realized as our business was negatively impacted in Q2. Despite the fact that we recognize record levels of opportunities in quotes, we experienced lower than expected conversion of quotes to purchase orders in Q1, which in turn left us with a much lower backlog of purchase orders at the beginning and early portion of Q2 compared to prior quarters.

Speaker 2

You also noted in our Q1 earnings call that we were experiencing slower than normal receivable from our customers in Q1. The good news is that our early recognition of these operational challenges enabled us to expedite the launch of several new initiatives in Q2 that have resulted in an improved quote to purchase order ratio by the end of the second quarter. I'm also pleased to report that our active collection efforts in Q2 were successful in reversing the downward receivable Trend that we experienced in Q1. Thus far in Q3, and despite a continued industry wide slowdown, Our business has greatly improved as evidenced by stronger sales and backlog, both of which have returned to more historical levels. We believe that our results in revenue for the Q2 of 2023 represents a temporary downturn and that we have taken the required actions to address these issues, which we believe will allow us to achieve better results for the Q3 of 2023 and beyond.

Speaker 2

Operationally, we have completed our realignment from a department structure To align a business structure to improve our ability to execute, we are continuing to focus our efforts on more quickly converting quotes Purchase orders through our Q2 initiatives previously mentioned for which we have seen positive results. As Eric will discuss Further, we have begun making progress utilizing our revenue enhancing projects for sequencing, embedded coordinators and remnant projects, which we believe will allow us to begin recognizing revenue from these efforts in the second half of this year. By the end of the third We expect to offer mixed day quotes, which we believe will be innovative for our customers and suppliers and will have a positive impact on our quarterly results. We appear to be back on target to achieve expected revenue results from our core business And to begin seeing a meaningful contribution of revenues from our revenue enhancing projects in the second half of the year, which we believe will contribute to iSpecimen becoming We remain steadfast in our mission to support researchers by providing instant search and access to patients, Biospecimens and data to our global network of healthcare providers. I am confident that our continuous improvement to consistently support our customer and to one of the most comprehensive platforms in the biospecimen industry lead to a stronger iSpecimen marketplace And I believe we'll result in stronger top and bottom line growth overall.

Speaker 2

We have a lot going on at iSpecimen and this is truly an exciting time for us. I look forward to updating you with our progress in the Q3. Now let me turn the call over to Eric Langloos, Chief Revenue Officer to discuss our near term adjacent revenue opportunities. Over to you, Eric.

Speaker 3

Thank you, Tracy. For the 4 revenue enhancing projects that we have for the year, sequencing It remains one of the most important revenue enhancing projects as we're seeing increased demand by researchers for donor form a fixed paraffin embedded FFPE Blocks to provide direct access to highly sought donor tumor tissue samples. ISpecimen is collaborating with supply and sequencing partners to identify very specific donor FFPE tissue from high value cancer patients that more likely than not possess The genetic signatures of cancer tissues provide important information necessary to develop new treatments and diagnostics. Access to large inventories These high quality valuable screen blocks has typically been difficult to obtain, are not always available with high quality and can be costly. However, with our extensive supplier network in a compelling partnering business model, we believe iSpecimen has made significant strides and overcoming these obstacles.

Speaker 3

We're investing in active repetitive sequencing to create a virtual inventory available for our research customers in these areas of high value. Providing profiles for highly sought donor tumor tissue samples to supply sites will be an ongoing activity as the company seeks to This new program offers the potential for immeasurable on demand virtual access and the new opportunity to customize future FFP tissue requests, all of which we believe can drastically change the entire cancer research paradigm. The power of the iSpecimen network makes ambitious initiatives like this possible. And when paired with the search functionality of our proprietary iSpecimen marketplace, will provide, we believe, a simpler solution. We have successfully launched our first sequencing pilot with approximately 300 samples and anticipate a modest level of revenue from the initial batch starting at the end of Q3 2023.

Speaker 3

This is the first of several runs we anticipate performing throughout the remainder of the year and beyond for this project. Embedded coordinators is another one of our revenue enhancing projects. On-site specimen embedded coordinators also progressing very well. The intention of this project is to provide resources to what we believe are our best and most potentially impactful sites and enable them to generate additional revenue even faster. As Tracy has highlighted on previous earnings calls, Many project orders convert slower than expected or are closed out by a customer prior to being fully fulfilled or completed, which has negatively impacted our revenues.

Speaker 3

Simply put, many of these clinical sites lack the bandwidth to simultaneously manage the day to day operations and fulfill the requests of iSpecimen's customers. More often than not, iSpecimen and its customers are deprioritized. ISpecimen spent the first half of this year evaluating the past, Accelerate revenue growth both in terms of speed and completeness. Each site's resources are being matched specifically to the type of Such that picking and shipping remnant samples, organizing and packaging inventory orders, assisting in the donor recruitment and execution of prospective collections We're reviewing charts and cataloging samples into a format that allows iSpecimen to feature specimens on our iSpecimen marketplace. We believe that this commitment to our sites will help all of our supply partners involved and enable their ability to fulfill orders and allow us to advance key initiatives that can increase sales such as our next day quotes.

Speaker 3

We have numerous sites that are in various stages of contract negotiations and deployment with an embedded coordinator in place at one site and 11 more hirings in the works. We will continue to add more sites where the business opportunities are substantial. We're also advancing our remnant revenue enhancement project, which is focused on improving internal operational processes and creating a line of business structure through Remnants of the leftover biospecimens from a sample collected for clinical and diagnostic purposes. Our efforts to streamline our workflow for remnant requests appear to be already positioning iSpecimen for sales growth and margin expansion for this line of business. We're still adjusting to some of the workflows and approaches to find new ways to bring in even more revenue in the second half of the year, and we are pleased to have already begun seeing the results of these efforts.

Speaker 3

One exciting technology development is an improved build out in our technology for flagging clinical remnant type sample requests and orders to appear on supplier dashboards to further help expand our capabilities within our pre existing supplier network. As we build out the technology to advance our Remnant business, we expect to see even greater impact on our quarterly financial results. Next, take quotes. And finally, operations and sales have been working together to create new workflows for our lines of business in order to bypass the feasibility Process wherever possible. The streamlined workflow will allow us to move straight to providing our customers with next day quotes for opportunities.

Speaker 3

Our suppliers are extremely excited about our move in this direction and we believe that providing next day quotes could be a market differentiator for us. I would now like to turn the call over to Evan Cox, our VP and Head of Product Management, to discuss how new technology advancements being made to our specimen marketplace platform. Our technology development and investments are extremely timely now that we offer are able to offer an even wider array of biospecimens that have historically been difficult to source. Evan, please go ahead.

Speaker 4

Thank you, Eric. Our product and technology efforts to improve the iXpress and Marketplace platform in 2023 include updating search functionality, improving the user interface, increasing automation and enhancing matchmaking. I'm pleased to report that we continue to make significant progress These initiatives, which remain our highest priority technical investments in 2023. We are improving integrations with our provider partners, Specifically with our first electronic medical record integration where we're working to achieve the same level of confidence we have in locating specimens to locating patients and donors. This project has already been used to complete multiple customer requests and we expect it to continue to accelerate the prospective collection process And reduce costs.

Speaker 4

Our technology team is currently performing a major upgrade to the iSpecimen marketplace search and request capabilities. We are consistently reevaluating our iXpressman marketplace search functionality as this is our public face to researchers and the entry point for request. These enhancements are keenly focused on upgrading to more modern user interface standards, new levels of automation, which will help us scale And major enhancements to our matchmaking algorithm to ensure the best possible matches between researchers and our vast supply network. We're happy to report that these changes have gone live or internal to the company's stakeholders and we expect them to be available to external users before the end of the year. Further, we're updating our back end architecture to support growth at scale, enhancing security and preparing for our data as a service pilot slated to take place in 2024.

Speaker 4

These back end updates are expected to be completed in the second half of the year. The successful completion of our data as a service Pilot, we believe will allow us to validate one of many possible additional revenue streams for I specimen. Finally, we are using our deep insights provided by nearly 10 years of historical data and experience with customer requests and supplier fulfillment To continue evolving our matchmaking algorithm, which is expected to result in better, faster matches and a streamlined procurement process for our researchers and reduce supplier efforts. As expected, we've already made significant progress on this initiative and are on track to complete it in the second half of the year. With that, I'll turn the call back to Tracy, who will provide more detailed discussion of our financial results for the Q2 of 2023 compared to the same period in 2022.

Speaker 2

Thank you, Emma. In the Q2 of 2023, we reported approximately $1,600,000 in revenue compared to approximately $2,300,000 during the same period last year. The decrease in revenue was discussed earlier and was attributable to a decrease of 2,322 specimens or 33% in specimen account In the 3 months ended June 30, 2023, the decrease in specimen account was offset by a change in specimen mix That resulted in an increase in the average selling price per specimen of approximately $13 or 4% compared to the same period in the prior year. During the 6 month period ended June 30, 2023, we reported revenue of approximately $4,600,000 compared to approximately $4,900,000 during the same period last year. The decrease in revenue for the 6 month period ended June 30, 2023 was attributable to a decrease in average selling price per specimen of $64 or 16 percent from approximately $407 in the 6 months ended June 30, 2022 to $3.43 in the 6 months ended June 30, 2023.

Speaker 2

The decrease in average selling price per specimen was offset by an increase of 1383 specimens or 12% in specimen account from 11928 specimens In the 6 months ended June 30, 2022 to 13,311 specimens in the 6 months ended June 30, 2023. Cost of revenue decreased by approximately $146,000 or 15% from approximately $1,000,000 in the Q2 of 2022 to approximately $854,000 for the Q2 of 2023. The 3 month period decrease was attributable to a 33% decrease in the number of specimens of session for the current period compared to the same period in the prior year, offset by a 28% increase in the average cost per specimen. Cost of revenue for the 6 month period ended June 30, 2023 was approximately $2,000,000 compared to approximately $2,200,000 for the same period in 2022, a decrease of 8%. The 6 month period decrease was attributable to a 17% decrease In the average cost per specimen impacted by the specimen mix, offset by a 12% increase in the number of specimens accessioned During the 6 months ended June 30, 2023, over the same period in the prior year, for the Q2 of 2020 We increased our cash spend for technology to approximately $1,500,000 from approximately $807,000 For the same period in the prior year, for the 6 month period ended June 30, 2023, we increased our cash spend for technology to approximately $3,400,000 from approximately $1,400,000 for the same period in the prior year.

Speaker 2

The increase in spend for the 3 6 month periods ended June 30, 2023 compared to the same prior year's periods is directly related to the record level of technology investment planned for 2023, which we believe will enable the continued advancement of our online marketplace The innovative in our industry. For the Q2 of 2023, this cash outlay was comprised of $1,200,000 of capitalized internally developed software and approximately $306,000 of technology expense that we were not able to capitalize and therefore classified as technology expense. The remainder of the technology expense for the second related to internally developed software and approximately $35,000 related to stock compensation expense. Total technology expense for the Q2 of 2023 was approximately $843,000 compared to approximately $636,000 for the same period in the prior year. For the 6 month period ended June 30, 2023, The cash outlay was comprised of approximately $2,700,000 of capitalized internally developed software and approximately $600,000 of technology expense that we were not able to capitalize and therefore classified as technology expense.

Speaker 2

The remainder of the technology expense for the 6 month period ended June 30, 2023 were comprised of approximately $935,000 Non cash amortization related to internally developed software and approximately $73,000 related to stock compensation expense. The technology expense for the 6 month period ended June 30, 2023 was approximately dollars for the Q2 of 2023, up 3% from approximately $951,000 for the Q2 of 2022. For the 6 month period ended June 30, 2023, sales and marketing expenses were approximately $2,000,000 up 17.6% from the approximately $1,700,000 during the same period in the prior year. General and administrative expenses for the 3 months ended June 30, 2023 increased by approximately $183,000 to approximately $1,800,000 or 12% compared to approximately 1 point $6,000,000 for the same period in the prior year. For the 6 month period ended June 30, 2023, General and administrative expenses increased by approximately $100,000 to approximately $3,500,000 or 3 percent compared to approximately $3,400,000 during the same period in the prior year.

Speaker 2

For the quarter ended June 30, 2023, I Specimen had approximately $2,000,000 of cash and cash equivalents and approximately $6,200,000 of available for sale securities with maturities ranging from 1 to 6 months. The combination of cash and cash equivalents and available for sale securities totaled approximately $8,200,000 as of June 30, 2023, compared to our cash balance of approximately $15,300,000 As of December 31, twenty twenty two, for the first half of twenty twenty three, the company had a cash burn of approximately $7,100,000 This is higher than a historical cash burn as it includes increased planned investments for technology in the first half of twenty twenty three of $2,700,000 and lower than expected revenue results for Q2. This concludes our prepared remarks. Now I would like to open the call for questions. Operator, please go ahead.

Operator

We will now begin the question and answer session. And our first question will come from Matt Hewitt of Craig Hallum, please go ahead.

Speaker 5

Good morning. This is Jack on for Matt. Thank you for the update and for taking my questions. My first one is more of a broader one. What impact are you seeing from your customers relating to the decline in funding for small pharma and biotech companies?

Speaker 5

Adam, are you experiencing any impact from this decline?

Speaker 2

Thanks, Jack. Glad you're on the call today. I'm going to so the answer is yes, we are seeing an impact and there are lots of things that we're working on internally to overcome that. I'll turn it over to Eric Langlois, our Chief Revenue Officer to talk about the sales and marketing changes that we made in Q2 to assist us in driving through this downturn that we're seeing. Eric?

Speaker 6

Yes. Thank you, Tracy, and thank you for the question. I think as some of the earnings Stated that we really recognized kind of the changing landscape at the end of Q1. So we're kind of bracing for some of Same as both on the purchase order conversion front, but also on the payment of past projects front. So it seemed like everyone was just going into A very conservative based position.

Speaker 6

So as Tracy stated, we implemented a number of different changes. We've really changed around our Marketing pushes and what we're pushing and how we're pushing it and the content and who it's going out to. We also We addressed all of our margins for quotations. That seemed to really create an impact just because we were able to obtain More POs toward the end of Q2 and into Q3 than we had in the prior couple of months. So that seemed to have almost an immediate impact.

Speaker 6

But we also moved to another system where we're doing a more structured cadence follow-up To our quotations, so that our ADRs who assist our salespeople, they're really doing a specific Schedule a follow-up on very specific days, making sure that we get feedback. And we also are engaging customers just To get information and feedback and talk to some other people throughout the industry to make sure that they were seeing and experiencing the Same things that we were, so that we'd be prepared to address it in some additional ways. So like I said, thankfully, a lot of these things have already, bared fruit. We've seen some results from it. Our conversion rates have gone up relatively about 50%.

Speaker 6

So I think That we're on the right track here. And I think as an industry, we're coming out of it a bit. But I think this is just Me speaking here from the data I've seen. I think the funding things that you mentioned are really impacting kind of The middle of the life science market, and I think pharma is still always okay, but they're being more conservative. And I think the funding that we are seeing is going into relatively new companies with new technologies and new entrants into the market.

Speaker 6

So I think it's the middle part that kind of got But I think like I said, the things that we've done, has really kind of lighted the ship and I think, will help us throughout the rest of the year.

Speaker 2

And I also think that this highlighted for us that we need to focus Slightly differently on our customer base. As Eric mentioned, we're sort of in the middle market, early stage Life Science Companies and the funding is still coming through for companies that are going through say a Series A. There is that going on and Big Pharma still has money. And so part of another strategy that we deployed in Q2 New customer acquisition with new campaigns in those areas for us to tap into These life science companies that actually still do have cash and they're still spending on R and D.

Speaker 5

Okay, that's helpful. I appreciate the color. And then, in your prepared remarks, You said that you're able to pivot to several new initiatives. What were those? And will you be able to replicate the success going forward into any other areas?

Speaker 2

Yes. So we actually looked at 4 different growth drivers and Eric has I talked to a bit of them, competitive pricing, new customer acquisition, our middle funnel conversion drivers and then Vindman and Bank Focus on some of the things we did for competitive pricing is we did look at are we competitive and if we felt That we could be more competitive, we went back to those quotes and became more competitive sharpening their pencil. Our new customer acquisition, I just talked a little bit about that, about new lead campaigns really focused on Series A and Big Pharma, also I'm doing some very mirrored product pushing from marketing efforts. And then for our conversion drivers, especially from co to PO, which is where it really impacted us. The mixed stake quote effort was already underway.

Speaker 2

We've accelerated that and we've created, if we will, internal term green light for Site product pushes and quoting where we know based upon really understanding our supplier capabilities That those requests and opportunities could be fulfilled. And again, we'll be fully operational with our next day quoting And it's underway. So we were starting to see benefits from that. And then for Remit and Bank Focus, because we can Convert and fulfill faster in the remittance bank area as opposed to perspective, which is our bespoke We really focused on sales and marketing fully immersed in Remdes and Bank Areas for product pushes, we've made sure that we're on a cadence of 2 times a week. And again, just making sure that we understand Our supplier capabilities and inventory so that we can expedite those opportunities to post and then from post to POs.

Speaker 2

Eric, is there anything else you want to add to that?

Speaker 6

No, not really. Yes, I mean, I think you've addressed all the drivers that we looked at and the Results and we've seen the trends in the data analytics that show that. But yes, I'll just highlight what you said. The next day quoting piece is a big thing. I think What we've really kind of dealt with now for a number of years is that a lot of these custom bespoke collections, They take a lot of operational lift to check out.

Speaker 6

The feasibility process can be very long. It can be 15 to as many as 60 days Just to evaluate a project and if all of your opportunities are concentrated in those custom collections, that Very, very difficult. So going back with the NextDayQuote project initiative and really lining out sites, going to them and saying, Hey, we want to market specific types of collections, specific standards. We want to be able to have a locked in Go to market pricing arrangements so that when we can go out and highlight those types of projects, we can actually fill more of our funnel with those things that are Preloaded and some of those collections will still take a long time to execute depending on the criteria and the specificity of what the customer is looking for. But at least we'll be able to get to the purchase order and contracting portion of it within a couple of days instead of a couple of weeks.

Speaker 6

And that allows us to reach A lot better revenue conversion velocity because we're starting the project a lot sooner. We're doing the training, the kit building in the donor recruitment phase of those projects a lot sooner. So I think having a number of sites Take part in that initiative, understand what we're trying to do, be very excited about the possibilities that they no longer for at least certain things, They no longer ever have to engage in the feasibility process. The customers are the ones that will end up benefiting the most from that. I mean, clearly, we were on the site well, But we're really trying to do something to it to address a bit of a time crunch there for our customers.

Speaker 5

Thank you for taking my questions.

Speaker 2

Thank

Operator

you. I show no further questions in the queue. So at this time, I'd like to turn the call over to Ms. Tracy Kehrli, CEO and CFO, for closing remarks.

Speaker 2

Thank you. I'd like to thank everyone again for joining us on today's call and for your continued interest We look forward to having follow-up conversations with many of you and to see many of you at the upcoming events That we will be attending this quarter. So again, thank you very much. Have a great day.

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